The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Withdrawing funds from your traditional individual retirement account (IRA) without triggering the token 10% penalty can be tricky but there are many ways to do -- including some you may not be aware of.

As we all (hopefully) know, there are some basic steps investors can take to withdraw funds from a traditional IRA without incurring a 10% penalty. Let’s start with the obvious, like waiting until after 59 ½ years old to withdraw funds. Withdrawing annual allowed contributions before your taxes are due will also avoid the penalty, and the same goes for withdrawing excess contributions. If you discover that you’ve contributed more than allowed (due to income limits or error) you are free to remove the excess and any associated growth before the tax return is due for the year.

Additionally, taking your required minimum distributions will keep the 10% penalty at bay. Technically this is covered by waiting to withdraw after age 59 ½ but sometimes required minimum distribution is required of a person who has inherited an IRA, regardless of age.

But beyond those well-known methods, there are more obscure ways to withdraw from your traditional IRA without getting knocked down by that painful penalty.

Take, for example, the so-called Series Of Substantially Equal Periodic Payments, better known as SOSEPP. This is the classic Section 72(t) method for withdrawing funds without penalty; essentially you agree to continue taking the same amount from your IRA for five years or until you reach age 59½, whichever is greater.

There are three methods of SOSEPP. The first is a required minimum distribution method which uses the IRS RMD table to determine your equal payments. Next, fixed amortization method calculates your equal payment based on one of three life expectancy tables published by the IRS. Last, the fixed annuitization method uses, as you probably guessed, an annuitization factor published by the IRS to determine your Equal Payments.

Section 72(t) includes some additional methods for taking distribution from your IRA including withdrawels for higher education expenses; in case of your death you beneficiaries can cash out your IRA without penalty; if you are “totally and permanently disabled" by IRS definition, you can withdraw with out penalty.

Also under 72(t) you can withdraw a limited amount without the 10% hit if you have high unreimbursed medical expenses or have lost your job and need to pay for your medical insurance premiums.